When the market context changes and the focus shifts from old to new themes, equity investing needs to constantly anticipate, prepare and respond to the evolving scenario. There is a need to approach the dynamic market shifts with a sense of preparedness and correct positioning. Portfolio strategy does exactly this by helping to constantly position a portfolio in line with the emerging market context. It ensures that stocks that are overvalued, over-owned and carrying significant downside are reduced or even given an exit when needed. It ensures allocation to sectors are made diligently and kept in check when the sectoral exposure rises due to market gains. For instance, when stocks in a particular sector or theme see a sharp rise and we own many stocks in the same category, we can reduce the potential risks to the portfolio when we sense the need to do so. We can also ensure that we capture the outlier returns during euphoric times by reducing exposure gradually as valuations rise significantly in a bull market. Portfolio strategy helps us to constantly focus on what needs to be done at the portfolio level to keep every portfolio safe, secure and growing. Whether a portfolio exceeds our expectations or underperforms, we can address its future growth needs effectively only through sensible portfolio strategy.
Yet, we often don’t view portfolio strategy as being as important as stock picking. We trust that stock picking will deliver us everything we want. We spend far more time sharpening stock-picking skills and very little on developing portfolio strategy. In recent years, stock picking has become an obsession among a new breed of investors, especially those in their first market cycle. Investors spend far more time hunting for new stocks than thinking about what their portfolio should look like. If we get the right stocks and buy a lot of them, we don’t care about how we approach the portfolio strategy. Success in individual stocks was seen as sufficient strategy in a soaring bull market. But the recent months have been challenging for investors who ignored portfolio strategy. Stocks that they thought would never lose value are struggling, while the nifty is trading near its all-time high. Portfolios heavily loaded with smallcaps and microcaps are struggling, while the headline indices have actually done well. This is not something most investors are actually prepared for. When you aren’t prepared for something, then you have a sense of despondency when the unexpected situation presents itself. That despondency is now visible among both individual and professional investors. Two questions are definitely on top of their minds. What could we have done differently? What can we do differently now? The answer to both questions lies in portfolio strategy.
An investment approach driven by sensible portfolio strategy can help protect from sharp market corrections, shifts in market leadership, and sudden risk-off trades in certain segments. You learn to anticipate the risks before the market sees them when your portfolio strategy is sound. You constantly think of what risks your portfolio will come up against in the coming quarters, and move to safety well before they begin to hurt. A sound portfolio strategy would have moved you out of microcap stocks and kept you away from SME stocks in late 2024 itself. A sensible allocation of capital within equities would have happened a year ago and you would have moved to the safety of largecaps over the lure of smallcaps. If equity valuations did not give you adequate comfort, you would have allocated monies to silver, gold and debt in 2024 itself. Funds would have moved out slowly from the microcap and smallcap space towards safety. Equity allocations would have become completely valuation-centric and disciplined. All this would have happened if an investor thought of his portfolio as a whole, identified the need to safeguard profits and to protect it from losses from sharp stock drawdowns. But most investors saw no urgency to do that in 2024 and for most of 2025. As the year ends, 2025 has exposed the weakness in any investor’s portfolio who failed to rethink their strategy in time. The absence of portfolio strategy is now starting to hurt. On the contrary, investors who pursued a multi-asset portfolio strategy in 2025 are actually laughing their way to the bank and even getting ready to take more risks if and when the markets correct sharply. The gap between those who pursued a holistic portfolio strategy and those who thought it wasn’t necessary in a surging equity market has turned out to be far wider than anyone would have expected. And that difference must be hurting the investor’s confidence. But, it is never too late. Even now, a revised portfolio strategy can limit damage, restrict further drawdowns and help the investor to respond better when the markets correct further. Portfolio strategy is essentially all about preparation. The preparation delivers confidence and capital when they are much needed. An investor is never found wanting in any market situation. The good news is that it’s still not too late to get your portfolio strategy up to speed. Getting your act together now will still save the day for your portfolio in 2026.
Shyam Sekhar, chief ideator and founder, iThought
